By John Kemp
LONDON- US manufacturers reported an unexpectedly widespread fall in business activity in October, postponing the sector’s exit from the prolonged downturn that began in late 2022.
Industrial energy consumption appeared to be steadying over the summer but the anticipated rebound will now be pushed back into 2024.
The Institute for Supply Management’s manufacturing purchasing managers index slipped to 46.7 (14th percentile for all months since 1980) in October down from 49.0 (24th percentile) in September.
In points terms, the decline was the largest since June 2022, and came after the index had risen in each of the three previous months, encouraging expectations that the sector’s downturn was nearing an end.
But the fall has left the index below the 50-point threshold dividing expanding activity from a contraction for 12 months running since November 2022.
The forward-looking new orders component of the index implies the downturn is likely to last for several more months.
The new orders sub-index slumped to 45.5 (9th percentile) in October down from 49.2 (20th percentile) in September.
In duration, the current downturn already has more in common with a cycle-ending recession than with a mid-cycle slowdown.
Since 1948, recessions have lasted for 11 months or more, while mid-cycle slowdowns have tended to last for eight months or fewer.
If the current downturn proves to be a mid-cycle slowdown, it has already lasted longer than any other since the Second World War.
But the downturn has also been unusually shallow and accompanied by the barest slowdown (if any) in the much larger services sector.
Some of the decline in manufacturing is probably attributable to industrial action at the three largest automakers in October.
Strikes at car and truck plants are likely to have a widespread impact on manufacturing activity given their large supply chains. Even so, they probably cannot explain the scale and breadth of the sudden slowdown in October.
Thirteen different industrial sectors reported contraction last month, including: printing, textiles, electrical equipment, machinery, fabricated metals, wood products, computers, furniture, paper, primary metals, chemicals and miscellaneous products, as well as transport equipment.
Only two sectors reported growth: food and drink, and plastics and rubber.
The sudden weakness in manufacturing came after activity had appeared to be nearing a cyclical trough in the third quarter, after sustained weakness in the first and second quarters.
